China Rout Spells More Troubles for Battered Macau CasinosBy , , and
Junket operator Iao Kun saw VIP traffic drop 20% in 3 months
Yuan devaluation curbs Chinese consumers' appetite to spend
China’s recent stock market rout is causing more troubles for Macau’s hard-luck casinos.
As the city’s casino downturn entered a 15th month in August, Chinese stocks losing $5 trillion of their value hasn’t helped. For Macau junket operator Iao Kun Group Holding Co., that market turmoil is one of the key reasons why gamblers are holding back.
Nasdaq-listed Iao Kun’s VIP rooms reserved for high-rollers lost 20 percent of their clients in the three months to August as "some don’t have the capital to come and play," its financial controller Derrick Wong said. "They now need to catch their breathe and recuperate."
Chinese high-stakes bettors "will wait until the economy gets better and then they will have spare money," Wong said in a telephone interview. "This is luxury, it’s about spare money.”
China’s slowing economy and its relentless crackdown on graft have hurt the shares of casino operators such as Sands China Ltd. and Galaxy Entertainment Group Ltd. Last month’s surprise devaluation of the yuan spread panic to global markets, deepening concerns over the state of China’s economy and further damping sentiment for Macau’s casino industry.
The Bloomberg Intelligence Macau Gaming Index has plummeted 67 percent from its peak on Jan. 20, 2014. Casino stocks extended Tuesday’s decline to close lower, with Galaxy, Wynn Macau Ltd., SJM Holdings Ltd. and MGM China Holdings Ltd. falling more than 4 percent while Sands China lost 3.2 percent by the end of trading in Hong Kong. The Hang Seng Index fell 1.2 percent.
“The yuan devaluation affects sentiment because of the lowered purchasing power among the Chinese,” Wong said, adding a slowing economy is another major factor deterring high-end players. Iao Kun runs five exclusive casino gambling venues at Macau casinos, including Galaxy and Sands China.
Tourist traffic from the mainland, which accounts for two-thirds of the total, has fallen for five straight months since March.
The weakening currency will have an 8 to 10 percent downward impact on mass gross gaming revenue in 2016, as converting yuan to the greenback-pegged Hong Kong dollars, the main currency for gambling, will cost patrons more, Daiwa Securities Co. analysts led by Jamie Soo wrote in a note last month.
Adding more negative news to the mix, Macau police arrested 17 people in a raid on five shops thought to be using China UnionPay point-of-sale terminals to illegally take cash out of China. The arrests may herald further restrictions on the use of UnionPay, making it harder for bettors to skirt currency controls.
There has been some positive signs. The Macau government has relaxed visa rules to allow visitors transiting through the city to stay longer and travel more frequently, while it may ease a proposed smoking ban.
But the overall sense remains negative. Galaxy’s new casinos that opened in May and the summer holiday season failed to rouse a return of mainland Chinese visitors to the former Portuguese colony, with August’s gaming revenue slump widening to 36 percent after easing since February.
September doesn’t look too promising for Macau either, according to Grant Govertsen, an analyst at Union Gaming Group. While China has scheduled a three-day holiday to commemorate the 70th anniversary of Japan’s defeat in World War Two, gamblers may stay away given the gravity of the occasion as “there appears to be an elevation in the call for patriotic sentiment,” he wrote in a note Tuesday.
The negativity could spread to other new casinos due to open in Macau this year and also next year, said Aaron Fischer, a Hong Kong-based analyst at CLSA Ltd.
"If you ask me what I’m most worried about: the Galaxy expansion hasn’t grown the market to the extent that we expected,” he said. “We have been disappointed by the gross gaming revenue in the last few months.”
— With assistance by Daryl Loo
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